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Investigation Launched Into Alleged Citizens Property Insurance Bribes
September 16, 2005

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TALLAHASSEE, Fla. -- Florida Chief Financial Officer Tom Gallagher opened a criminal fraud investigation Thursday into whether the head of the state's insurer for people who can't get private homeowners coverage took bribes to steer business to adjusters.

R. Paul Hulsebusch resigned as CEO of Citizens Property Insurance Corp. last Friday. A lawsuit in Texas alleges that Hulsebusch, 39, accepted at least $25,000 in goods as a bribe from an adjuster who then won a contract to handle claims for Citizens.

Citizens was created by the state Legislature in 2002 to sell property insurance policies to people who can't get coverage in the open marketplace because of high hurricane risks.

The lawsuit was filed by Universal Risk Insurance Services of Houston, and amended this week to include a bribery allegation. It came to light in Florida on Thursday when the St. Petersburg Times wrote about Hulsebusch's resignation.

Gallagher said he instructed his agency's fraud investigators to immediately launch a criminal inquiry and subpoena all documents related to the case.

"We need to get to the bottom of it because this could truly affect how claims are paid and it is extremely important that people are treated fairly on their claims and that the claims are taken care of in a timely manner," Gallagher said. "We know that we had problems last year with those four storms and it's important we investigate whether or not there was some kind of things going on among the claims company and maybe an employee at Citizens."

The company fielded 118,000 claims from last year's hurricanes, 11 percent of the 1.7 million overall filed in Florida.

Universal Risk is seeking $3.6 million it says it lost by not getting an adjusting contract with Citizens plus unspecified punitive damages from Citizens, Hulsebusch and Quantum Claim Services, which it accuses of paying the bribe to get the contract.

A number at Hulsebusch's Coopersburg, Pa. home was busy on Thursday. Rodney Harrell, identified by the Times as the owner of Quantum, didn't return a message left by The Associated Press.

Citizens executive director Bob Ricker released a statement saying the insurer was taking the allegations seriously is investigating.

"This claim will be thoroughly reviewed," Ricker said.

Hulsebusch was hired in February by Citizens to revamp its claims operation. Citizens received thousands of complaints for how its adjusters handled claims from hurricanes Charley, Frances, Ivan and Jeanne in 2004.

Universal alleged it had agreements to handle claims in Florida last year, but that it lost the work after Quantum paid Hulsebusch "in return for substantial work assignments resulting in substantial revenue for Quantum and substantial lost revenue to Universal Risk."

Citizens' No. 2 chief quits as kickback probe begins
By David Sedore, Palm Beach Post Staff Writer, September 16, 2005

Florida Chief Financial Officer Tom Gallagher ordered a criminal investigation Thursday into allegations that a top official of the state's insurer of last resort took a $28,000 kickback from a Texas firm in exchange for work in Florida last year handling insurance claims from Hurricane Ivan.

The allegations surround Citizens Property Insurance Corp. Chief Operating Officer R. Paul Hulsebusch, who resigned Sept. 9 after less than a year on the job. He left two days after Citizens officials learned that a second Texas insurance adjusting firm, which is suing Hulsebusch and Citizens, said in the lawsuit it had evidence of the kickback paid to Hulsebusch. That firm, Universal Risk Insurance Services Inc. of Houston, also is suing the competing insurance adjuster  Quantum Claim Service LLC  that allegedly paid off Hulsebusch, seeking $3.6 million in damages.

"These developments are especially troubling because Floridians' claims may have been mishandled as a result," Gallagher said. "We will pursue this investigation fully to ensure complete accountability."

Justin Glover, a Citizens spokesman, said the insurer welcomed the state probe conducted by detectives with the fraud division of Department of Financial Services. He said Citizens was looking into the allegations, too.

Citizens is Florida's No. 2 property insurer with about 745,000 policies, including more than 90,000 in Palm Beach County. The company, which covers homes that private insurance companies won't, handled 120,000 property damage claims statewide resulting from last year's four storms.

After a whirlwind of customer complaints about its slow claims handling, Citizens hired Hulsebusch in October as a consultant to upgrade its claims operation. In February, the 39-year-old was named Citizens No. 2 executive at a salary of $150,000. Before joining Citizens, Hulsebusch worked in New Jersey for GAB Robins, an international insurance services company.

"Unfortunately, it's another example of mismanagement on the part of Citizens," said Sen. Ron Klein, D-Boca Raton, who previously asked for an audit of Citizens' claims handling in the wake of last year's hurricanes. "I would hope that in a bipartisan way we can get to the bottom of what it takes to fix Citizens."

According to the lawsuit Universal Insurance filed in April in Harris County, Texas, Hulsebusch asked Universal last year to come to Florida to place damage estimates on hurricane claims from Citizens customers. The firm did so, handling 1,800 claims in the Pensacola area. Hulsebusch at first agreed to pay Universal the going rate for insurance adjustment work. Later, Hulsebusch offered less money and in the end Universal wasn't paid at all.

Universal claimed Citizens owed $1 million to the firm for its work. Universal learned recently that Hulsebusch had given adjustment work promised to Universal to Quantum instead, and that Quantum had given Hulsebusch $28,000 in goods and services, Universal's Houston lawyer Scott Rothenberg said.

The allegation against Hulsebusch is included in an amended suit Universal filed Wednesday in Texas.

"We have the evidence," Rothenberg said Thursday. "I would not make these allegations lightly."

Herbert Schwartz, a Houston lawyer who represents Hulsebusch and Citizens, declined to comment.

Details of Bribe Charges Smack State-Run Insurer Citizens Property Insurance

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Sep. 16--TALLAHASSEE -- A $28,095 motorcycle driven by a top executive of a state-run insurer triggered a criminal investigation Thursday into possible bribery in the upper echelons at Citizens Property Insurance Corp.

The motorcycle was purchased by an adjuster hired to work last year's hurricanes for Citizens, which insures property owners statewide who cannot find coverage on the open market. The motorcycle was given to the man who decided which adjusters were hired after the four-hurricane disaster: Citizens former chief operating officer, R. Paul Hulsebusch, state officials said Thursday.

It's also alleged Hulsebusch, who resigned from Citizens abruptly Sept. 9, never told his boss at Citizens that he had sold a business to that same adjuster for $200,000 and still held a note for $100,000.

The details shed insight into allegations first disclosed Thursday in the St. Petersburg Times.

The Times reported that Hulsebusch's resignation came just two days after Citizens received information that an adjuster, Texas-based Quantum Claims vices, had questionable ties to Hulsebusch. Quantum is owned by Paul Harrell of Richmond, Texas. Citizens has refused requests so far from the Times to view the information, saying its attorneys are reviewing whether they are subject to public record. The state-created insurer obtained the information from another adjuster involved in a Texas lawsuit.

However, Florida Chief Financial Officer Tom Gallagher said the documents include a receipt indicating that Hulsebusch's motorcycle was purchased by Quantum. Gallagher, a 2006 Republican gubernatorial candidate, launched the criminal investigation Thursday under his authority to weed out fraud in the insurance industry.

The controversy comes as Citizens battles increased public scrutiny and frustration from its policyholders. Key state politicians, including Gov. Jeb Bush, who appoints two of Citizens' board members, were clearly angered Thursday that they learned the allegations only through a newspaper report.

"I've asked for my office to inquire," Bush said. "That was news to me, and it shouldn't be news to me, to be honest with you. I shouldn't read it in the paper, which I did."

Citizens' officials have declined to discuss other specific details, but said Thursday they have taken the allegations seriously. They hired former South Florida U.S. Attorney Marcos Jimenez and Miami accounting firm Lewis B. Freeman & Partners to investigate the allegations last week. Citizens' board holds its monthly meeting today in Orlando.

"It would be inappropriate to reach any conclusion until all the facts are known," Citizens executive director Bob Ricker said in a prepared statement. "At the completion of our investigation, Citizens will make a full disclosure of the results. We also welcome the investigation by the Florida Department of Financial Services."

Citizens said it first learned of the allegations last week from a former vendor who filed an initial lawsuit in March against Citizens, Hulsebusch, Quantum and Harrell in a Houston court.

Universal Risk Insurance Services amended the lawsuit Wednesday to include the bribery charges against Hulsebusch. Universal says its refusal to pay similar kickbacks caused Hulsebusch to strip away some of its business and give it to the adjuster who bought the motorcycle. The firm is seeking $3.6-million in lost, past and future damages and unspecified punitive damages.

Gallagher said Universal provided Citizens with a copy of the motorcycle receipt.

Reached Thursday, Hulsebusch, 39, referred all questions to his attorney, Steve Durrant of Jacksonville. Durrant couldn't be reached for comment.

Neither Harrell, Quantum's owner, nor a company attorney could be reached for comment.

"I don't think there is any question that (the motorcycle purchase) happened," Gallagher said. Hulsebusch "was driving it."

"Whether there were kickbacks involved and whether he was requesting kickbacks, that's to be determined," he said. "We're going to find out the whole story."

Hulsebusch, required to fill out a full disclosure form at the time he was hired by Citizens, also didn't disclose he had sold a business previously to Harrell, Gallagher said. "He might not have been hired if he had," said Gallagher.

He said he learned of the bribery allegations late Wednesday from his staff, who in turn were told about them by a Times reporter. Prior to July 1, Gallagher appointed all Citizens board members. Now under a new state law, he appoints two of them.

Rudy Garcia, a Republican state senator from Hialeah who chairs the Senate Insurance Committee, said he wondered if Citizens would have ever disclosed the information had it not been reported. "There needs to be a serious shakeup of this process," he said.

By law, Citizens must charge the highest rates in the market. After last year's hurricane season, Citizens' policyholders complained more about customer service than any other company's. Now they're facing, on average, a 23 percent rate hike.

What's more, all Florida property owners will see a 7 percent surcharge on their annual premium this year to help Citizens recover from a $515-million deficit caused by hurricane claim payouts. The cost for someone with a $1,300 premium is roughly $90. The hiring of Hulsebusch in October 2004 was actually designed to help quell some controversy. Ricker, Citizens executive director hired Hulsebusch, who last worked for a New Jersey insurance company, to overhaul the claims operation after receiving thousands of complaints about sluggish response after hurricanes Charley, Frances, Ivan and Jeanne. Four months later, he was hired as the permanent chief operating officer at a $150,000 salary.

Gallagher said so far he continues to have confidence in Ricker's leadership. He has heard no evidence to believe anyone but Hulsebusch was involved, he said.

Had Hulsebusch not resigned, Ricker would have fired him, Gallagher said.

"You see the handwriting on the wall, you resign before you're fired," Gallagher said. "Otherwise he would have been fired for cause."

Times staff writer Steve Bousquet contributed to this report.

Tampa Tribune
Byline: Dave Simanoff

Sep. 16--TAMPA -- Florida's Department of Financial Services said Thursday it's launching a criminal investigation into the dealings of R. Paul Hulsebusch, the former chief operating officer of Citizens Property Insurance Corp.

A Houston-based insurance company, Universal Risk Insurance Services, alleged in a lawsuit that Hulsebusch, 39, took bribes from one of Universal's competitors and steered Citizens business away from Universal and toward the rival last year.

Universal's lawsuit, filed in Harris County District Court in Texas, seeks $3.6 million for lost profits and an unspecified amount for damages from Hulsebusch, Citizens and the competitor, Quantum Claim Service LLC of Katy, Texas.

Hulsebusch resigned from Citizens on Sept. 9, company spokesman Justin Glover said.

The Tribune tried to reach Hulsebusch for comment, but he did not respond to messages.

A woman who answered the phone at Hulsebusch's home in Coopersburg, Pa., on Thursday said she had forwarded messages to Hulsebusch and his attorneys.

She declined to give her name.

Quantum owner Rodney Harrell, who is named in the lawsuit as a defendant, also did not reply to messages seeking comment about the allegations.

The state established Citizens to write policies for people who can't find coverage in the private market. Universal and Quantum are among the companies hired by Citizens to provide claims adjusters after last year's hurricanes.

A claims adjuster is a professional who puts a value on the damage a home or business sustained in a hurricane or other natural disaster.

The Florida Department of Financial Services investigates allegations, such as those raised by Universal, through its Division of Insurance Fraud.

"These developments are especially troubling because Floridians' claims may have been mishandled as a result," said Tom Gallagher, Florida's chief financial officer and head of the state's Department of Financial Services.

"We will pursue this investigation fully to ensure complete accountability for Florida's consumers," he said.

Scott Rothenberg, Universal's attorney, said the company originally sought to find out why Citizens hadn't paid some claims for which Universal had done the claims adjustment work.

Citizens blamed Universal for the problem, Rothenberg said.

Universal said in its lawsuit that Hulsebusch accepted "literally tens of thousands of dollars in goods and merchandise," court documents show.

According to the lawsuit, Universal also said: Citizens asked Universal to send claims adjusters as quickly as possible but delayed signing a contract with Universal several times.

Several months after Universal sent adjusters to Florida, Citizens said it wouldn't honor the company's published rates.

"The people of Florida deserve a full accounting here," Rothenberg said.

Citizens Property Insurance Corporation is the defendant in a class action suit filed in Leon County in which clarification is sought on whether Citizens is responsible for paying for hurricane damage caused by flooding, which has long been covered by the federal government.

Citizens was created by the Florida Legislature to serve as the state's insurer of last resort for homeowners who cannot find coverage in the private market. Because of Florida's unique exposure to disasters, the safety net provided by Citizens is crucial for our state's growing population. While Citizens makes every effort to pay fully and fairly for losses, this effort should be limited to covered losses.

For more information, see the documents below.

Class Action Letter
Class Action Statement

Assessment
As a result of last years unprecedented storms, Citizens Property Insurance Corporation incurred more than $2.4 billion in losses, stemming from nearly 120,000 claims. Because of these losses, Citizens now has a shortfall of approximately $516 million. Under Florida law this amount must be recouped by a one-time assessment on property insurance companies statewide, to ensure Citizens is able to pay claims in the event of future storms.

FAQ for Consumers and Agents
FAQ for Companies

Florida Office of Insurance Regulation Industry Portal

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Mississippi slaps insurers with suit
State's attorney general claims insurers took advantage of Katrina victims; suit names 5 defendants.
September 15, 2005: 6:12 PM EDT

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NEW YORK (CNN/Money) - Mississippi Attorney General Jim Hood sued insurers in his state Thursday for taking advantage of Hurricane Katrina victims and not covering damage to homes caused by flooding in the aftermath of the storm.

Mississippi Farm Bureau Insurance, State Farm Fire and Casualty Co., Allstate Property and Casualty Co., United Services Automobile Association and Nationwide Mutual Insurance Co. were listed as defendants in the suit.

Hood's office is investigating charges that claims adjusters from these companies offered homeowners affected by the storm $3,000 in personal expense money in return for signing waivers agreeing their home's damage was from a flood and not from wind.

Flood insurance is not included in standard commercial or homeowners policies, while damage caused by wind typically is covered.

Nationwide said the suit's allegations were unfounded. "Our company is absolutely not asking policyholders to acknowledge damage is flood related in order to receive a check for living expenses," the company said in a statement.

"No such form or activity is sanctioned by Nationwide, nor does Nationwide own any company called Nationwide Flood Insurance Company, as noted in the legal action filed today," the statement added. The company also said it investigates each claim individually before making any coverage decision.

State Farm spokesperson Phil Supple said by challenging the validity of contracts in Mississippi, the suit threatens the foundation of the state's economy.

"The attorney general's action threatens to undermine the insurance industry's financial stability and its ability to respond not only to its obligations arising out of Katrina but also its ability to respond to other claim obligations in Mississippi and elsewhere around the country," he said.

The suit asks that certain provisions in policies offered by the insurance companies be declared "void and unenforceable." Those provisions exclude from coverage much of the property loss and damage caused by Hurricane Katrina.

The suit also seeks to prohibit insurers from using these provisions when adjusting property claims.

"The companies will try to work with the policyholders to resolve this issue," Bill Davis of the Insurance Information Institute, a trade group, told CNN.

"There may have to be engineering studies done to determine what caused the damage," he said.

With flood insurance largely unavailable in standard policies, homeowners who want that protection have to buy policies sold through the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency.

Risk modeling firms have estimated that insurance companies may have to pay up to $60 billion for damage caused by Katrina.

Click here for tips on sorting out your home insurance claim.

Click here for more about lawsuits in the wake of Katrina.

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